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TORONTO, Nov. 26 /CNW/ - Vehicle imports from the United States have
surged as the Canadian dollar climbed above parity with the U.S. greenback,
pressuring sales in Canada, as well as prices for new and used vehicles,
according to the latest Global Auto Report released today by Scotia Economics.
Canadians imported a record 137,000 new and used vehicles from the United
States through October, 21 per cent above a year earlier, according to data
from the Registrar of Imported Vehicles.
"The import surge was particularly striking in October, with Canadians
importing a record 24,873 vehicles into Canada, double the level of a year ago
and a 68 per cent increase from the previous month," said Carlos Gomes,
Scotiabank's auto industry specialist. "The import surge and vehicle price
differential between Canada and the United States reflect the rapid
appreciation of the Canadian dollar, and are not due to increases in the
manufacturers' suggested retail price (MSRP) in Canada.
"In fact, Canadian new car prices were flat between 1998 and 2006 and
have declined by five per cent so far this year," added Mr. Gomes. "This
reflects the fact that while manufacturers have not adjusted their MSRPs in
Canada, they have enhanced incentives and have been offering better lease and
financing deals. As such, transaction prices have fallen, led by an eight per
cent decline for North American-built light trucks."
While MSRPs on many vehicles remain $4,000-$5,000 higher in Canada than
in the United States, the decline in new vehicle prices in Canada has
intensified since the spring, leading to lower prices for used vehicles,
especially one-year old models. As of early November, the Scotiabank Used Car
Price Index had fallen five per cent below a year earlier, led by an eight per
cent drop in the price of one-year old models.
The potential impact on used car prices and residual values is the main
reason why automakers are reluctant to reduce MSRPs, especially since the
number of vehicles coming off-lease is set to jump to a record 550,000 units
in 2008, up from a five-year low of 470,000 units last year, and nearly triple
the current level of imports from the United States. Furthermore, the number
of vehicles coming off-lease next year represents a record 14 per cent of the
entire Canadian market (new and used sales), suggesting that increased supply
will pressure residual values.
However, recognizing that Canadians are demanding lower vehicle prices in
view of the deals available in the United States, automakers boosted
incentives further earlier this month, offering discounts up to $10,000 on
selected models in an attempt to entice Canadians to move off the sidelines
and buy vehicles at home. Some manufacturers have also recently announced
lower prices for their all-new 2008 models.
Looking at used vehicle imports by province, Ontario and British Columbia
account for two-thirds of overall imports from the United States, nearly
20 per cent above their share of overall Canadian motor vehicle sales. We
estimate that roughly 40 per cent of all used vehicles imported from the
United States are destined for Ontario, a level only slightly above the
province's share of the entire Canadian vehicle fleet.
British Columbia is the big surprise, with the province representing
27 per cent of all vehicles imported into Canada, more than double its share
of overall Canadian sales. The high percentage of imports into British
Columbia reflects the large population base in Vancouver and the Lower
Mainland as well as the region's proximity to major cities in the U.S.
Northwest, especially Seattle.
In contrast, used vehicle imports from the United States have experienced
only moderate gains in Quebec and across most of Atlantic Canada. For example,
while vehicle imports have tripled across Canada since 2004, the increase in
Quebec is much smaller and is being driven by imports by large dealers.
Meanwhile, in Atlantic Canada, only New Brunswick has experienced a
double-digit increase in imports from the United States. However, even with
this jump, imports from the United States only represent a small percentage of
overall sales in the province.
"Looking forward, the auto sector will continue to experience
disinflation even if automakers hold off on lowering MSRPs. This reflects the
fact that with macro economic trends continuing to weaken in the United
States, used car prices will face downward pressure south of the border," said
Mr. Gomes. "This should further bolster imports into Canada, provided that the
Canadian dollar remains close to parity, a good bet given Canada's
comparatively strong economic fundamentals."
Turning to new vehicle sales, purchases across North America weakened to
an annualized 18.7 million units in October, down from an average of
19.0 million during the previous two months.
In Canada, sales edged up two per cent in October, reversing the previous
month's year-over-year decline. Despite the improvement, sales totalled an
annualized 1.57 million units in October, well below the August peak of
1.77 million. In fact, purchases have softened below 1.60 million units over
the past two months, as consumers appear to have moved to the sidelines in
anticipation of lower vehicle prices.
In the United States, purchases remained below a year earlier for the
fifth consecutive month, with volumes dampened by the ongoing turmoil in the
U.S. housing market, as well as record oil prices.
Scotia Economics provides clients with in-depth research into the factors
shaping the outlook for Canada and the global economy, including macroeconomic
developments, currency and capital market trends, commodity and industry
performance, as well as monetary, fiscal and public policy issues.